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There are more versions of Unreal Editor (or UnrealEd or UEd) - on this site we have Unreal Editor for UT3 in mind most of the time (Unreal Editor for Unreal Engine 3 - bundled with UT3 game).

Unreal Editor is the main tool for creating your level. You can do most of the work in other tool though - for instance Maya or 3DS Max - however you have to put your assets into the UnrealEd and "cook" the level here. Aside from level visuals you have to add sounds, AI pathing, pickups, movers (lifts, doors) and other things related to gameplay into your level - and here is where UnrealEd takes its place.

General audience sometimes confuses UnrealEd versions because the Engine version and UnrealEd version stopped to correspond after UnrealEd 2 came out. The best way how to clarify the version you want is to use "Unreal Editor for <game>" - which in case of UT3 is also the official name of the editor (check Help->About Unreal Editor for Unreal Tournament 3 (UT3)). Never use "Unreal Editor 3" for this editor - it is completely misleading because that's the editor for Unreal Engine 2 games. Don't use Unreal Editor 4 either - Epic is probably saving this name for the tool delivered with Unreal Engine 4.